A Whats App message (titled “This Tsunami will wipe out your money lying in the Banks”) is going viral with a link to an article which suggests that our bank deposits are no longer safe; they can be appropriated by the government and used for bailing out banks.

Your LIC endowment plans are guaranteed by the Government of India – and that is a separate agreement between LIC and Govt of India. Just in case the government decides to withdraw the guarantee, your policies will be at risk.

Will the Govt of India go back on their implicit guarantees of the bank deposits and the LiC Policies? Well, at least in case of life insurance companies IRDA has suggested to the gov of India that it should withdraw its guarantee – it gives an unfair advantage to LIC of India. In case of banks, there is international pressure to keep banks independent.


Yes and No.

We have no clue when this will become law. As of now we are all covered by a sovereign guarantee and our fixed deposits in Psu banks are safe. Our money in LIC is safe.

Both these are lousy assets and DO NOT GIVE US A REAL RETURN..so by those standards it is risky, but no, you will not lose the nominal amount. Not as of now.

If the government had not bailed out Global Trust bank one would have had a clearer view of what RBI was doing. So at least to hide its inefficiencies RBI will not want bank failures. However, if a small bank fails, RBI will merge it with the bigger banks. Well, at least as of now. However, the government is arming itself to use YOUR deposit ALSO for bailing a bank. There is a ‘bail-in’ clause in the FRDI Bill that allows the government to convert your deposits into equity in order to bail out banks that are facing bankruptcy. So if a PSU bank lends stupidly like IDBI bank with 25% NPA, its capital + reserves may not be ADEQUATE. So your deposits could be in danger.

Forget the legal lingo. Let us come to what you should do?

  1. Keep your money in safe banks which are big. Examples are SBI and Hdfc bank. Do not take chance with poorly managed banks.
  2. Andhra Bank, Canara Bank, Punjab & Sind Bank, Union Bank and State Bank of India -are in line to pay dividends.4
  3. If your money is in loss making banks like IOB, Indian bank, Uco bank…I suggest you shift it to the better banks.
  4. Among private sector banks it is Hdfc bank which has a real solid balance sheet. Stick to them.

In India we have a massive bad loan problem that remains unresolved. Bad loans of banks have dramatically increased  from Rs39,030 crore in 2008 to Rs2,16,739 crore in 2014—and the total amount that has been written off till now in the past 10 years exceeds Rs. 360,000 crores!! Remember all this comes from the taxes we pay.

So the government needs a solution. One solution is to use your hard earned money which FOOLISHLY lies in the bank. So one day if they decide that you will take a hair cut, well, you will.


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  1. It is of course not acceptable. How can the Government appropriate citizens’ deposits, convert them into equity and then adjust the equity against the defaulted loans. People will withdraw their deposits from such riskier banks and would keep it with more solid banks, like, HDFC, etc. Or cash transactions will increase, as people would not keep their hard earned money in banks, rather keep them in cash, and make transactions in cash.
    This will negate Government’s efforts and aim to increase digital payments in India.
    This is not going to work.
    Further, India is a solidly growing (between 6 to 8%) large economy and also the world’s largest democracy. Every 5 years, you have to polls and get people’s mandate for politicians’ survival. Do you think, any body would vote for the same Government which brought such cruel deal to its citizens.

  2. Don’t worry Kamal Garg. Next time when Namo wants to do something he will read subramoney.com and read your comment. On that basis he will decide, what is to be done, I hope.

    if he does not read my blog what happens?

  3. If this happens (which is very likely), aam aadmi need to be prepared not just to take hair cut but also lose shirts and trousers except the innerwares, hopefully!.

  4. Any tinkering of this sort with the banks would collapse the financial system. Banks primary capital is depositor’s money and news of govt doing with one bank would derail whole banks. No one would trust any bank not even SBI or HDFC. People would rush to withdraw whatever they can from any bank. It would be utter chaos.

    It is so ridiculous that after Demo and hardly any significant unearthing of black money from swiss or within the country, govt going about fleecing the depositors money would be nail in the coffin.

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